Walmart Threatens Movie Studios

On September 6, James Stoup wrote about what he called the gathering storm between Wal-Mart and Apple. In it he suggested that Wal-Mart would open it’s own online movie store. He asked what other choice the retail giant has.

This week Wal-Mart decided they do have another choice.

According to the New York Post, the Disney studio offers Apple a better deal than it does to Wal-Mart. Other studios have expressed an interest in coming aboard. They have seen the success of iTunes and want a piece of the download pie.

Wal-Mart doesn’t want to risk losing its DVD business to Apple. They have threatened retaliation. According to an unnamed source in the article, Wal-Mart plans to use it’s massive buying power to keep the studios in line. In other words, they have told retailers that if they follow Disney’s lead, they will notice a drop in orders from Wal-Mart.

Somehow I find that ironic. For years Wal-Mart has used its ability to purchase items cheaper than anybody else to undercut the competition. Now that another company is doing it to them, they don’t like it at all.

Do you think Wal-Mart’s threat will have any impact on whether or not Hollywood joins iTunes? I’m not so sure that Wal-Mart will really be hurt by the ability to download movies. A lot of customers would prefer to purchase a hard copy instead of loading it their iPods. There is also a certain amount of impulse buying when people shop at Wal-Mart.

Wal-Marts threat to purchase fewer movies from the studios does, however, have potential to hurt them. The risk is that customers will turn to iTunes to find the movies they can’t get at the retail store. Posts on several internet forums suggest that many users don’t want to download and watch a movie on the small screen. Yet buyers will go where it is easy to get the product. If they can’t get the DVD they want while shopping at Wal-Mart, they may just develop the habit of going to iTunes for it.

If I were a retailer I wouldn’t even consider trying to make a deal with Apple just yet. I’d wait until after the Christmas season, and during this time I’d be watching Disney closely. After Disney’s deal with iTunes, Wal-Mart sent several cases of DVDs back to them. I’d wait to see if any of this seemed to hurt the company.

Wal-Mart’s threats are an interesting strategy. Wal-Mart is afraid that iTunes will cut into their sales, so they packed up Disney’s DVDs and sent them back to the company. This gives them fewer DVDs to sell, thereby cutting into their sales.

How about you? Do you think movie studios will listen to Wal-Mart, or will they get enough business from iTunes to risk losing their largest customer?

I’m guessing that with time things will cool down. Just like with music, you’ll eventually be able to purchase DVDs from both. Maybe Wal-Mart will even be able to negotiate a better deal with the movie studios. This could only benefit consumers.

I don’t have any plans to download movies for the same reason I’ve never bought those tiny televisions that were being sold everywhere at one time. I like a larger screen to watch movies on. If I can’t find what I want at Wal-Mart, I’ll stop looking there and go somewhere else.

Do you think this is a smart move by Wal-Mart? Does iTunes really pose a threat?

Maybe movie studios don’t want to lose this chain as a customer, but obviously Wal-Mart feels they need the DVDs, too. It might be smarter to try to find a way to work together.

Comments

I am constantly annoyed at companies that fear competition so much that they try to stop it by some strong arm tactics like this. I already don’t shop at Wal Mart for a variety of reasons but this just gives me another reason to add to the list.

That being said, I do not really think iTunes poses any kind of threat to DVD sales in general. At least not yet.
I buy music almost exclusively from iTunes now. I am no audiophile and I cannot notice any depreciable loss in audio quality from buying my music this way.
But, movies? I bought a HD LCD TV last year and the DVDs I own already do not do it justice. iTunes movies are listed as “near DVD quality”. From what I’ve read that is somewhat of a stretch.

I think there are a lot of people out there that will notice the lower video quality versus the number of people that will never notice Apple’s lower audio quality in their songs.

Maybe Wal Mart is just looking to the future when iTunes may be able to offer video in HD for download. That has to be pretty far off but I’m sure it’s coming. If it gets here Wal Mart should be prepared to compete. Not throw temper tantrums.

Walmart is just evil… and this tactic doesn’t do anything to disabuse that notion. It only strengthens it.

While Walmart isn’t a monopoly, it wields the same kind of power in the retail sector. The “We won’t carry your movies if you list on iTunes” is exactly the kind of restraint of trade tactic that the Sherman Antitrust Act was intended to prevent, much like “We won’t give you the Windows OEM price if you bundle Netscape on your PCs” for which the DoJ ‘punished’ Microsoft.

Gabe H is exactly right—there is a small overlap between consumers who buy DVDs and consumers who download movie content, but the lower quality of downloaded content means that DVD sales won’t be too adversely affected until higher quality content becomes available (especially with Blu-ray and HD DVD becoming available).

Vote with your dollars. Don’t shop at Walmart… not just for movies, but for everything.

Walmart is at a dead end. They are big but they aren’t going to get much bigger anymore. They’ve already coralled the demographic of people who don’t mind buying shoddy products as long as they’re cheap. They’re trying to move up-market and get some of the Target crowd but a lot of those folks would rather die than be seen sneaking into a Walmart.

The tide is coming in relentlessly… The distribution and rental of movies on media has a limited life - only the limited availability of really fast internet connections will keep a brake on the move to downloads.

If you operate a movie rental store, sell it now!

There is another point here which seems to have gone unnoticed. And that is the incremental revenue on the studios’ backl catalgues. The vast majority of old movies are currently unavailable - the cost of distibution/stocking/advertising being too high for older, perhaps not very successful, movies. But when your distribution costs are zero, why not release everything you have?

Perhaps the movie studios will ease themselves into a relationship with Apple - releasing the back catalogue first, and leaving the first-run movies with Wal Mart for the time being…

K. If people want a specific DVD (made by a certain movie studio), they go to Wal-Mart, Best Buy or iTunes to get it. How would movie studios suffer from this? They already either have a good movie or a bad movie. It doesn’t matter where the consumer buys it. It just matters that they buy it.

If Wal-Mart wants to quit purchasing DVDs as retaliation I’m sure Target will be quite happy to hear it and reap the rewards. There might be a few instances where I would down load a movie from iTunes but I’d rather have the DVD. I already shop Target rather than Wal-Mart so there’s not much of an issue here for me. Other people who do shop Wal-Mart for DVDs will soon go somewhere else as well. I would love to see the masses get tired of Wally tactics.

Do you think movie studios will listen to Wal-Mart, or will they get enough business from iTunes to risk losing their largest customer?

The answer is yes, then no. iTunes is a blip for the studios. It’s still a small percentage for music even with the growth of music downloads. It’s insignificant for movies and will probably stay that way for quite some time.

That said, Wal-mart is obviously abusing its defacto monopoly (they retail 50% of the movies sold by the studios) and such moves should not be tolerated, if they are indeed true.

People siding with Gabe should stop reading and start downloading. The iTMS offers a number of free downloads where you can see first hand how good the quality is and let me tell you that “Near DVD” quality is not a stretch and depending on the DVD and the DVD player you might be surprised how good these movies are.
As for the small screen argument. This may be an issue for some people but many of you probably already have what you need to get your downloads and big screen too. If you have a 5th gen iPod with video, you can get a cable to connect your iPod to your big screen and see how nice it really can be. If you have a laptop you get a cable to plug it into most screens (and the new laptops with front row support are really cool).
For the rest of you, maybe iTV will be the silver bullet that will get you to see how much nicer it is to have your movie library available at the touch of a button instead of having to hunt through endless DVD cases. Not only should Walmart be worried, DirectTV, Dish and the cable companies should be worried too.

Like, say, locking out competitors with restrictive DRM that you refuse to license to anyone else?

If that bothered me I wouldn’t shop iTunes. Apple creates both hardware and software to complement each other and they lock most everyone else out. I knew that going in.
The only way your analogy works is if Apple were to go to Best Buy and say that they could not sell any Macs or iPods if they continue to sell Dells. Not a fair comparison, Beeb. We all know you have this major problem with the way Apple runs that whole iTunes/iPod integration. Try to bring something new once in a while. That’s not even the point of the article and it’s not a reasonable parallel to bring up here.

But, I would like to make another point about the whole Wal Mart whine-fest. I think they are really miscalculating here. I know there is a small percentage of people that buy DVDs on impule. I’ve done it myself.
But, if someone can’t find their DVDs at Wal Mart, are they really going to not buy the DVD? I think they would just go somewhere else and the movie studios would still get their money.

Maybe I’m wrong and the impulse buy is a larger percentage and since a LOT of people shop at Wal Mart they buy DVDs while they stop to pick up a socket wrench and some pants and a gallon of Hi-C.

I just think Wal Mart sells more for the same reason they sell more of everything. Price. If they don’t carry the DVDs I think people will just get them elsewhere.

The only way your analogy works is if Apple were to go to Best Buy and say that they could not sell any Macs or iPods if they continue to sell Dells. Not a fair comparison, Beeb

I didn’t use an analogy. You said you opposed “strong arm tactics.” It’s only an unfair comparison if you’re arguing that there is only ONE kind of strong-arm tactic and that Apple could only be guilty of it by doing EXACTLY what Wal-mart is doing or it doesn’t count.

Strong arm tactics come in many forms. Restrictive DRM that locks out competition from a defacto monopoly. Or bullying your suppliers into only dealing with your retail company.

Or how about cease and desist letters barring the use of the word “pod” (not iPod, mind you) from companies making products not even remotely releated to portable music?

Is that a strong-arm tactic or does your definition automatically excluse anything Apple does?

We all know you have this major problem with the way Apple runs that whole iTunes/iPod integration. Try to bring something new once in a while.

I bring it up because you Apple-apologists are still apparently too dense to understand it.

Licensing Fairplay would not affect the iTune$/iPod integration in any way, shape, or form. You could still use your iPod and iTune$ exactly as you do now. The DIFFERENCE is that you would then have a CHOICE to buy another portable music player to use with iTune$ in addition to, or instead of, your iPod.

Except that Apple is afraid of that competition. Their refusal to share is a strong-arm tactic as YOU defined it earlier. Albeit, you did not mention the caveat that nothing Apple ever does counts.

Beeb,
Do you also criticize Gillette for not letting Bic make replacement blades for Gillette razors? It’s the same business practice.

I always read on the net that the iTunes/iPod integration is “anti-competitive”... but how?

The consumer is still free to buy a non-iPod music player and purchase their music from other services that offers the PlaysForSure DRM (or non-DRM files in the case of eMusic) or CDs or whatnot. The iTunes integration doesn’t prevent this.

Also, as an aside, I recall that older versions of iTunes did sync to non-iPods (just not the DRM’d music). Isn’t this still the case? If so, you can still use your Creative player with iTunes. You just can’t buy from the store (but you still can buy from the other music stores and use non-DRM MP3s). How is that anti-competitive?

With the Walmart example, the consumer is NOT free to purchase movies however they like. They are forced to use Walmart because Walmart is trying to block iTunes users.

But Apple does not block its users from buying music in other ways, through other online stores or standard retail.